1. Section 232 “Lean Thing” WHAT’S UP WITH THAT? Tim Coon Raelee Jones
Scott Thurman
WHAT’S UP WITH THAT?

2. Host

4. Kaizen Update
with Raelee Jones

5. Bathroom Waivers Expedited Processing no longer available
Need to meet Lean criteria
Waivers typically only considered on Memory Care facilities
Mixed Results on Waivers
May not want to go there!

6. Appraisal Update – UPL/IGT
UPL – Upper Payment Limit
IGT – Intergovernmental Transfer
Brief – Some States give an add on to Medicaid rate when Operators affiliated with Hospitals
States – primarily IL and TX
Issue – How to underwrite add on rate?
How long will it continue? How is it valued?
Blast - 6/27/2012 (“Special Income Sources”)
Proceed with CAUTION. ORCF re-evaluating position

7. Appraisal Update – Decision Circuits
Excel Templates for:
Refinance
New Construction
Purpose: Help determine extent of appraisal review
Aids Lender in Identifying issues needing thorough explanation

8. Appraisal Update – Decision Circuits
Decision Circuits possibly replace Appraisal Section of Lender Narrative
Needs to go through PRA process (Paperwork reduction Act)
Decision Circuits are Optional, but encouraged
Posted to Drafting Board
Updated frequently
In closing Raelee, you cant spell PRAY without P R A, which may explain why prayers frequently seem to go unanswered.
Can’t spell TOMB without OMB, which is why sometimes good ideas die.

9. ORCF Drafting Table

10. Healthcare Portal – Phase I Quarterly Operator Financials

11. Requirement GAO Audit Accountability Rule Change: 9/7/12
24 CFR Part 5.801
Federal Register Notice on 10/3/2014
See 2/25/2015 Blast for details.
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12. Timing and Commencement
Quarterly Financials: Must be submitted to HUD within 60 Days of the End of the Quarter
FYE Financials: Must be submitted to HUD within 90 Days of the End of the FY
Required for FY’s commencing on or after 12/2/2014.
Great majority of projects (CY) – 1st Q 2015
Due End of May, 2015
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13. Basics Applies to all Section 232 projects
No Lease, Operator = Mortgagor
Operator Certified Financials OK.
Mortgagor Annual Audited Financials Still Required.
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14. Overview of the Process
Healthcare Portal calculates five ratios
Chapter 4 of Section 232 Handbook (Asset Mgmt)
DSCR
Days Cash on Hand
Avg. Payment Period
Working Capital
Change in Receivables
Ratios immediately available to lender

15. Recent and Next Steps
HUD verifying accuracy of contact information for operators:
We sent out 3,000+ s
Updating our iREMS system with revised contact info
500 or so bounced
We ed servicing lender to ask for help in identifying operator contact
See list of s of servicing lender contact
If incorrect,

16. Phase II of Healthcare Portal
Envisioned Capabilities:
Electronic submittal by lender of all Asset Mgmt transactions, requests, reporting:
TPA’s, Change Operator, Partial Release, R4R Releases, New Lease up reporting, problems at a project, etc.
HUD tracking of status and timing of requests
Same system as Operator Financials

17. Medicare Stars –What are They?
The elderly’s critique of various Celebrities?
The 5 Star rating overseen by CMS to help consumers, their families, and caregivers compare nursing homes more easily
FALSE

18. Medicare Stars –What is CMS?
A disease commonly found on cruise ships?
The Center for Medicare and Medicaid Services, an agency within the U.S. Dept. of Health and Human Services responsible for administration of several key federal healthcare programs.
FALSE

19. Medicare Stars – Overview
The Quality Rating System gives each nursing home a rating of between 1 and 5 stars.
5 stars = above average quality
1 star = below average
There is one overall rating and a separate rating for each of the following:
Health Inspections –based on three years of data
Staffing* – info about the number of hours of care provided on average to each resident each day by nursing staff.
Quality Measures* – info on all different physical and clinical measures for nursing home residents.
*self-reported by facility

20. Medicare Stars – What’s New
Late last year CMS announced changes that began implementation this year. The changes were aimed at
Rescaling to create a more Balanced / Diversified rating system
Continue to drive quality, better care in Nursing homes
Add more Q measures of importance
Tweak areas of measurement risk with better source data

21. Medicare Stars – Specific Changes
Nationwide Focused Survey Inspection- enables better verification
Payroll Based Staff Reporting – auditable back to payrolls to verify staffing information
Additional Quality Measures – increases number and type of quality of measures (ex: antipsychotic medication)
Timely and Complete Inspection Data – Ensure states provide accurate and timely information
Improved Scoring Methodology – Revise Scoring, already weighing independent data more than self reported

22. Nursing Homes Star Ratings %
Medicare Stars & HUD
ORCF began incorporating 5 star rating information into loan committee memos back in 2010.
CMS Ratings for Quality Measures have been sliding up.
Nursing Homes Star Ratings %
Stars
2008
2011
2014 5
10%
15.9%
47% 4
24%
27.3%
34% 3
23%
21.2%
13% 2
20% 5% 1
15.6% 2%

23. Medicare Stars - Future
Expect a periodic re-scaling of the 5 star rating system
All NH’s will be affected by this action
Expect new Q measures to be added or changed periodically; often influenced by interests in improving care and economic value
About 2100 NH’s in the existing 232 portfolio
There is a key metric/stretch goal to maintain/exceed the average (CMS) quality rating of ORCF portfolio by issuing skilled NH commitments to facilities with an average CMS rating of 2.8 or higher.
HUD recommends:
Lenders and Operators become familiar with how the changes impact your ratings of your properties
Operators be prepared to address local family concerns about their rating status.
Operators think ahead and prepare for the staffing capture, periodic new QMs.

24. Medicare Stars - Conclusion
HUD trying to increase average
CMS trying to lower the average
Reaching for the Stars

25. Section 232 Claims Fiscal Year 2014 claims rate remained excellent:
2 claims and 1 PPC = .06% claim rate
Recent Claims:
Operator:
# Cause:
Fraud or poor (financial/quality of care)
Olmstead: Next slide
Market

26. Section 232 Claims 8 of 14 Claims Since 2012: MI Population
Olmstead Decision
Initiative to move tenants to less institutionalized homes.
Also 2 empty buildings (Ohio and Indiana)
New Construction Remains Highest Risk:
52% of Projects on Priority Watch List
vs.
24% of Portfolio are/were NC

27. Average Monthly Default* Data
* Default = 60+ days delinquent
Fiscal Year
UPB in Default (60+ days)
Default Rate
2012
$302 Million
1.65%
2013
$285 Million
1.45%
2014 (Partial)
$303 Million
1.43%

28. Red Flags
Actions that are out of the ordinary i.e. late payment pattern.
Loan moving to a rolling delinquency from current status
Responsiveness of property to information requests i.e. delaying by Operator/Owner
Financials showing trend of late payables/receivables
Operator/Owner not pursuing receivables

29. Red Flags
Operator/Owner having legal issues i.e. Judgments or liens from Vendors
Ratios declining over time
Actions taken by third parties i.e. State slowdown on reimbursements
Property being represented by Legal Counsel in discussions with HUD/Lender
Loan moving rapidly from current to default and no plan to correct

30. Red Flags
Operator/Owner not having plans or understanding what to do to fix or address changes impacting the business negatively
Decline in surveys, SFF designation, star rating decline, CMPs or other sanctions from CMS or State toward property
Sudden compliance issues that are severe I.e. sanctions, cancelling CMS certification or participation notices, State action against the property
On set of legal action against the property that could impact the facility
Legal action against the Owner/Operator that could result in incarceration

31. Eligible Debt Bridge loans Debt seasoning Identity of interest debt
Operator debt

32. ORCF Asset Management
PROCESS IMPROVEMENTS

33. General Process Improvements
1st Step: Standardization
Lender submittal: checklists, templates
HUD review: Punchlists
Stakeholder involvement - volunteers
Transparency

34. General Process Improvements
2nd Step: HUD AE Specialization: LEADER!!!
New Unit Lease up
R4R Releases and Non-Critical Repair Escrow
Change in Participant (TPA, Operator, Mgmt Agent)
Other Processes – AR Financing, Capital Improvement, etc.?
3rd Step: Healthcare Portal – electronic transfer of data and tracking.

35. Lease up of new units Projects currently with 15+ AE’s
Specialized team of HUD AE’s being created:
You will be notified of change to AE
Goal will be to keep all of lender’s projects in lease up under one AE
Sustaining occupancy – regular AE
See IOD form – aggregating data - sharing
Submittal of form:
Near term: AE,
Long term: Healthcare portal

36. R4R Releases Ongoing meetings with HUD and lenders
Team has made recommendations:
Checklists and Detailed AE Punchlist
Slight revisions to existing forms – no narrative
Handbook changes (must go through process)
Specialized team to be led by Mary Walsh
When ready to accept R4R requests in this manner, we’ll announce via blast.
Request by – until portal:

37. Non-critical Repair Admin
September Kaizen Breakout Session
Team is still working on process – close…..
Specialized team in next two months or so.
When ready to accept Repair Escrow requests in this manner, we’ll announce via blast.
Request by – until portal:

38. Change in Participant September Kaizen breakout item
Rita Dockery and Angela Collier leading effort.
Using standardize Production documents (generally)
Draft checklists, narrative templates, punchlists under review by OGC and ORCF
After this, stakeholder involvement (volunteers?)
Change in Operator – UPL specific info
Specialized team will be created.

39. Blast Signup

40. ORCF Asset Management
Lender delegation

41. Lender Delegation Review & Approval
232 HB establishes for R4R & Non-Critical Repairs
MF only has a process for Non-Critical Repairs
Several lenders approved by MF
AMCOD will review lender approval requests
We will publish procedures for this on HUD.GOV

42. R4R: Lender Delegation Review & Approval Non Critical:
Must be set up on each loan in Development (inspection fee language in handbook)
Until blast issued, if you want to pursue:
R4R:
Please wait until blast issued (next 2 months)

43. Market Study Update Updating Chapter 5
Team – 4-5 outside appraiser w/ 2-3 HUD appraisers
Most significant change – Case Studies required
Show how Demand Model works in Stabilized Market

44. Interest Rate Reductions (IRR)
IRRs are Loan Modifications proposing to simply to lower the existing interest rate on performing loans (vs. Default Loan Mods)
Lender Checklist and Lender Analysis are posted on HUD.gov
Also new docs: Lender Certification and OGC Review Checklist

45. IRR Loan Modification SUBMISSIONS
Dedicated Box for Electronic Submissions:
Specialized Team in Asset Management
Quick accurate Preliminary Reviews COMMUNICATION IS KEY- applies to lenders and lender counsel!

46. IRR Loan Modification SUBMISSIONS
NOTE: IRRs have a two stage ORCF review
OGC actively involved only in 2nd review.
Therefore, a preliminary and a final review process is performed for all streamlined Section 232 IRRs prior to final approval being granted and documents executed by ORCF
Checklists give clear direction!

47. Process Flow of Interest Rate Reductions in ORCF
Submit IRR Package
(Use ORCF Checklist and Lender Analysis)
Prelim Review
Finalize Mod Docs and Submit
(Use OGC Checklist)
Final Review, OGC Concurrence
HUD Approves
Close IRR, Submit Recorded Docs
(45 Days)

48. IRR Loan Modification – GNMA Letter
Lender includes a Letter from GNMA if loan in GNMA pool to address investor consent.
Project must be out of prepay lockout
Project must pay any required prepayment penalties
GNMA recognizes the Issuer of Record and provides letter to that entity
New prepayment premium schedule is acceptable in modification document

49. IRR Loan Modification – other
Other Considerations:
RfR Balance: If below $1000/per unit – address
Sprinklers: If SNF check that it is Fully Sprinklered per CMS Requirements
Troubled: If loan is still below 1.11 DSCR after IRR – address (Plan of Action)
CMS Star Ratings: If SNF and poor history or quality of care – address
Whether a PCNA is due

50. IRR Loan Modification – PCNAs
Submit if >10 years since last PCNA
Note in Lender Analysis if change in RfR Payments
Describe sources of funds and timeline for any required repairs.
Propose Special Conditions if applicable

51. IRR Loan Modification – Trade Premiums
CANNOT cover:
Borrower Counsel
Organizational Costs
3rd Party Reports (e.g. PCNA)

52. IRR Loan Modification – Trade Premiums
Trade Premiums CAN cover:
Any portion not retained by Lender can be applied to Lender Costs (Lender Counsel, GNMA commitment fee),Title/Recording or defray prepayment premium.
Remaining can be applied to RfR Balance
Please indicate use of Trade Premium in Sources and Uses and Lender Analysis Narrative

53. IRR Loan Modification – ISSUES
Common Issues Slowing Down IRRs:
Incorrect calculations (check: DSCR, Sources & Uses)
Quality Control (Exhibits must be internally consistent)
Letter from GNMA not included
Affiliated projects not identified hindering better workload efficiency
Lack of Communication

54. IRR Loan Modification – STATS Total = 230 Received
IN QUEUE 12 IN REVIEW 22 PRELIM REVIEW DONE 65 APPROVED/COMPLETED 123 EXTENDED 1 WITHDRAWN 7
11/12/2018

55. Questions
Please submit to: